Who Regulates the “Business” of Healthcare in Virginia?

by James C. Sherlock

Understanding the relationships between healthcare and government oversight in Virginia requires distinguishing between the business of healthcare and the practice of medicine.

In Virginia, the Department of Health regulates the practice of medicine. The State Corporation Commission regulates the business of health insurance. No agency of the administration has the authority to regulate the business activities of healthcare providers. The Attorneys General, who have the power to reign in the most obvious abuses, have looked the other way. Virginians have for generations paid the costs.

The Virginia Department of Health (VDH) has been responsible for the administration of Certificate of Public Need (COPN) since its inception in 1973. The law itself is bad enough without feckless administration. But without any legislative mandate to do so and at the urging of incumbents, VDH used COPN to create and protect regional monopolies everywhere but Richmond, where their employees live.

When really important COPN decisions were coming up for decision, the hospital systems were known to install their own executives to the post of Health Commissioner. (See Sentara’s win in 2008 of the biggest COPN decision ever as example.) The state-awarded monopolies in turn have created the most dominant regional economic and thus political powers in the state, its hospitals.

No attempt by various administrations, including the current one, to address the gap in administrative oversight has worked. Some recent examples:

  • Last year a bill tasked the State Corporation Commission to deal with the balance-billing issue. When the SCC proposed a rule that required hospitals simply to notify non-emergency patients of the potential for out-of-network charges, the hospitals declared that the Department of Health was their regulator, not the SCC. The Department of Health, of course, has no authority to regulate hospitals’ business activities.
  • The 2019 Appropriation Act[1] tasked the Secretary of Health and Human Resources to convene a workgroup to establish “equitable and fair reimbursement” for health care providers in balance- billing situations. “The Workgroup did not reach consensus for a specific recommendation.”[2] There are three streams of revenue in play — for hospitals, independent providers and insurers. Virginia’s hospitals will always win such a discussion or leave the table.
  • Last summer Governor Ralph Northam convened a workgroup led by a professional mediator to come up with consensus COPN reform. A wide range of stakeholders were represented at very senior levels. The Governor kicked it off personally. Secretary of Health and Human Services Daniel Carey attended subsequent sessions. To make a very long story short, at the end of what was supposed to be a set of meetings with a report of consensus, the hospital representatives walked away and did not return. Why should hospitals compromise on COPN when they own the process?

So, the message to the Governor and the Secretary from the hospital leaders is unmistakable. Hospitals will advise the government when they wish for state action. With the change in control of the General Assembly in 2020, the industry saw an opportunity to strengthen its grip.

I wrote earlier about the identical bills carried by Sen. George Barker, D-Alexandria, and Del. Mark Sickles, D-Alexandria. They dance when the hospitals hum a tune. The bills will strengthen COPN to prevent any semblance of future competition. They will also result in the closure of some existing independent ambulatory surgery centers.

Beyond COPN, every bill remaining in the 2020 General Assembly docket that addresses healthcare costs solves every perceived problem by making the insurers pay for their solutions. The list includes balance billing and tens of millions of dollars to shift the ACA marketplace from the federal website to a new state website. No details beyond vague slogans are offered on why a state website would be a good thing. Insurers don’t really pay for such state charges, their insured ultimately do. These bills are stealth taxes. How long will it be before major health insurers refuse to write policies in Virginia? That, of course, is the desired outcome for hospitals with captive insurers.

The strong-arm actions by some of the regional monopolies aimed at weak competition and the monopoly-enabled overcharging of patients have been completely ignored. This behavior has been reported again and again in the press, by the Department of Justice and Federal Trade Commission in a joint report to the General Assembly and by peer-reviewed academic studies. It continues to occur in plain sight.

The administrative power of the state is under the iron control of its hospitals. And hospital monopolies are effectively protected from federal antitrust laws under what is termed the state action doctrine.

However, state attorneys general have no such limits. The Commonwealth awarded the monopolies. It did not authorize them to use that market power illegally. The constitutional officer in Virginia with the authority to prosecute businesses acting illegally is Attorney General Mark Herring. 

The purpose of the Virginia Antitrust Act is:

is to promote the free market system in the economy of this Commonwealth by prohibiting restraints of trade and monopolistic practices that act or tend to act to decrease competition. This chapter shall be construed in accordance with the legislative purpose to implement fully the Commonwealth’s police power to regulate commerce.”[3]

Yet for decades Virginia Attorneys General have express no interest in Virginia’s regionally dominant hospital systems. Not one has used the state antitrust laws to tame monopolistic behavior. Perhaps that’s because Virginia’s AGs, wishing to become governor, did not want to cross the politically powerful hospitals.

Herring wants to be governor. He can earn the position by enforcing the Virginia Antitrust Act. Or he can neglect antitrust issues and be held accountable by the people of Virginia.

James C. Sherlock, a Virginia Beach resident, is a retired Navy Captain and a certified enterprise architect. As a private citizen, he has researched and written about the business of healthcare in Virginia. 


[1] 2019 Appropriation Act, Item 21F

[2] https://rga.lis.virginia.gov/Published/2020/RD64

[3] Code of Virginia, Virginia Antitrust Act § 59.1-9.2.

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37 responses to “Who Regulates the “Business” of Healthcare in Virginia?

  1. This is another excellent post.

    It goes right at the heart of the problem its raises, and it shows why that problem will continue to feaster and grow against the public interest unless and until it is fixed by an obvious solution that should rightfully be deemed an obligation of government, and executed by a particular government official.

  2. A clarification. The Virginia Attorney General as well as injured parties can sue in federal court to enforce federal antitrust laws, but the Attorney General of the United States will not under the state action doctrine.

  3. If Virginia’s healthcare system is significantly more expensive then other states – then I’m interested in why and what reforms.

    If Virginia’s health care costs are similar to other states then I wonder what States are BETTER than us and what they do different from us and perhaps on COPN.

    Many states have taken on the responsibility of administering the ACA program. It’s not clear to me what the advantage is and that’s an important thing to know but apparently the State has already decided it’s better.

    When we talk about Virginia’s healthcare system and what some say, needs to be done, I want to see what other states have done and whether those changes were actually better and that includes COPN.

    I KNOW that the COPN issue is one of ideological views/beliefs but I’m not yet convinced that it’s A or THE problem with healthcare costs. The logic behind it is actually to curtail increased healthcare costs. The argument is whether or not COPN increases or lowers costs. Looking at other states experience with COPN is worthwhile in my view.

  4. The actual economic “logic” of COPN can be summarized as “control supply in the face of increasing demand, concentrate it in a few hands and prices will fall.” Read that twice.

    I’ll later post the joint letter by the Department of Justice and the Federal Trade Commission to the Virginia General Assembly urging COPN repeal. If you don’t care for that logic, Larry, contact them and report back to us.

  5. By the way, that letter was written by the Obama Justice Department and FTC but mirrors similar views of those same agencies under the Bush administration. Bi-partisan findings of fact.

  6. In the early days of COPN regulation, the justification was that competition led to excess and unnecessary investment — everyone had to have an MRI machine, everyone needed a PET scanner. The result was more MRIs and PET scanners than the market needed, but hospitals had to pay for the machines, so they ran patients through them and charged what the market would bear. The bureaucratic answer was to curtail the level of capital investment in order to increase utilization.

    It sounded great in theory. Needless to say, it hasn’t worked out so well in practice. One only needs to look at the historical record of Virginia over the past 30 years to see that restricting supply is not how you bring down costs.

    • One need only remember the Government 101 lessons in college that describe a concept called the Iron Triangle.

    • re: ” It sounded great in theory. Needless to say, it hasn’t worked out so well in practice. ”

      how so?

      I know the two theories. What do we have that confirms one theory or the other?

      For instance, do we have a list of services in COPN states versus non-COPN states?

      What I get out of this is people’s strong beliefs and they cite “theories” but do we have some convincing data?

      the basic problem with supply/demand theories is that they assume only a one to one relationship without any other factors – and the real world is not that way.

      COPN is not the reason why healthcare is so expensive. If it was, we’d have a simple solution.

      The problem is we have folks who have ideological beliefs and they’re convinced that their way of thinking is the right way and fixes market “problems”.

      It’s more a belief than anything real that can be verified with real world examples.

  7. Larry, it it ok for me to point out that my column was about private interest control of government, not COPN, and that I cited COPN only as the inarguable source of regional healthcare monopolies?

  8. sherlockj, it’s a consistent theme, no?

    I’m not convinced that COPN is there solely because of private sector wants.

    on the bigger picture of private interest “control” of government – as the reason why healthcare is so costly – I’m on board – with caveats.

    I don’t see it solely ideological terms.

    No question that prescription drugs are in the fold as well as other players in the provider realm – which extends beyond hospitals to non-hospital private sector providers.

    But where I differ is the idea that if the govt got out of it that the “market” would correct the issues and we’d have lower priced healthcare.

    No other country on the planet works this way so what would make me believe that the unfettered market would fix the price problem?

    To me, as soon as we say that we will require coverage of pre-existing conditions, we have screwed the “market” pooch.

    no?

  9. The hospital association has long wielded clout in the General Assembly. This instance of “private interests controlling government” is not new or unique. Just look at Dominion, the wine and beer distributors, the contractors, the road builders, etc.

    Health care issues are complex–that is trite, I know. It takes people with expertise who have the time to expend on them to work on these issues. The General Assembly may have some people with the expertise, but the legislators are less and less willing or able to spend the time necessary. And look at the federal government: Congress is having trouble trying to find a solution to the balance-billing problem and not for lack of trying, and it is not a partisan issue.

    It strikes me that it would be difficult to attack the hospitals on state anti-trust grounds when some of their primary means of establishing their market dominance has been sanctioned by state law: COPN and the establishment of their own insurance plans.

    It would be helpful to me if you could provide one or two examples of COPN decisions that you find especially troubling (Sentara, for example) and why.

    • Yep. Dick has got it right. I’d add, if other states have found a way to get control of the problem and reduce the private sector influence – and as a result, actually have lower healthcare costs – I’m all in favor of replicating it.

      And I’m not opposed to Virginia being the FIRST but as Dick says – the guys/gals in the GA – and in Congress – are not competent in the realm of healthcare and how it should plug and play with govt.

      Now, Europe HAS mastered that art as well as Asia as they, as a matter of course, not only cover all of their populations, but they do it for 1/2 what we do – and they all have longer life expectancies than us.

      Why is THAT not a model to follow?

      We see to be saying that we want a NEW model, one that does not yet exist – and it reeks of ideological beliefs rather than looking at any current models that work.

      • If you remember, in one of my recent columns, the last one I think, I recommended changing Virginia’s Board of Health advisory model over to Maryland’s independent Healthcare Commission model with operational responsibilities, including running Maryland’s CON law.

        • Right, but here’s my problem. We have claims and assertions about CON including anecdotal examples but a dearth of comparative hard data between CON and non-CON states.

          Second, Maryland is a CON state, so are you arguing against CON as a concept or in favor of CON but implemented in a different way than Virginia?

          In that case, there are 34 CON states – so the obvious question is are they any better or worse than non-CON states and if so, which of the 34 CON states does it “right”? Is Maryland the best of the CON states? Why?

          I’m a skeptic on CON for several reasons. One of them is that most services that are controlled by CON and non-CON are not sold in a real “market” with people finding out where the cheapest services are and pay out of pocket. Most services are paid for by insurance companies through capped reimbursements where the covered person has even less input into any decision other than to go to each facility and find out how much their insurance company will reimburse and how much they end up with out-of-pocket.

          See, it’s things like this that make be doubt the “market” approach to health care services.

          If the doctor says you need an MRI pronto to check on a possible disease condition – are you really going to shop around for the best price when that MRI might well be just the beginning of a series of other decisions about medical providers and services?

          Most folks once they have a problem and begin treatment – are much more concerned with getting timely, high-quality treatment than they are about saving dollars – unless they are uninsured and will be billed for the entire amount. Even then, some medical providers will not serve you if you cannot pay and you’ll end up with providers that are essentially willing to treat you and not get paid or have to try to recover costs with collectors or courts.

          Even THEN, does lower cost services mean equal quality? Even IF you could get lower cost services, will it provide you with the same level of quality – i.e. the best MRIs manned with top-notch and expensive professionals? How does one do that trade off? How many people are equipped with the knowledge to be able to make informed decisions?

          This is a behemoth of a conundrum!

          HOWEVER, I am willing to be persuaded with real comparative data between CON and non-CON states or similar.

          I just am not going to be on a bandwagon that has ideological roots and no real convincing proof other than people who believe the ideology.

    • I’ll do it in another column, Dick. Its cocktail hour. For now, I’ll offer this statistic:
      Virginia, under COPN restrictions, has less than 80 ambulatory surgical centers, the hospitals’ biggest fear. Nearly half of them are owned by the hospitals themselves. Maryland, which has a CON law but exempts small physician-owned ASCs, has over 500. And its hospitals, including rural hospitals, are open for business. Not coincidentally, Maryland has a far higher density of physicians than does Virginia.

      • Those differentials between Virginia and Maryland health service facilities are shocking. Surely geographic densities of suburban areas in Maryland versus Virginia must play some offsetting roll here, at least to a degree. Still it’s a major obstacle to good new development unless mechanisms are in built to correct it.

      • And Maryland campaign contribution limits:

        From individuals, $6,000 / candidate, $24,000 aggregate to all candidates per 4 year election cycle.
        Transfer limits from state parties: Same as individual
        PAC to candidate: Same as individual
        Corporate to candidate: Same as individual
        Union to candidate: same as individual

        Kind of hard for special interests to buy off the legislature with those rules.

        • Ah, as opposed to “the Virginia Way” where the citizens get the shaft by intention of their own representatives, given a built in corrupt system of governance?

          • Lots of states used to be as corrupt as Virginia but they tightened their campaign finance and disclosure laws. There was some momentum to start to address this issue in the ongoing General Assembly session this year but Boss Saslaw and Eileen “Night of the Living Dead” Filler-Corn made sure the legislation never saw the light of day.

          • Reed Fawell 3rd

            Yes, and Chap Peterson made a good effort there as well, I recall.

  10. Speaking of healthcare … Have any of the elected worthies in Richmond been watching the news lately? Seems there’s a possible healthcare issue even bigger than teachers bringing their own sun block to school. Coronavirus. If I understand what was said by the CDC today we could be looking at 40% to 70% infection rates in the US with 2% of cases causing death. At the high end of that range we’re talking about 112,000 deaths in Virginia. From 1976 through 2016 the worst year for flu deaths IN AMERICA was 56,000 in 2012 – 2013. Trump says things are “under control” while Larry Kudlow wants investors to buy on the dip. Very reassuring. Here’s some advice from our always effective Federal government:

    “We are asking the American public to work with us to prepare for the expectation that this could be bad,” a top CDC officials told reporters in a conference call outlining what schools and businesses will likely need to do if the COVID-19 virus starts to spread throughout the U.S.

    Schools should consider dividing students into smaller groups or close and use “internet-based teleschooling,” Dr. Nancy Messonnier, director of the CDC’s National Center for Immunization and Respiratory Diseases, told reporters on a conference call.

    “For adults, businesses can replace in-person meetings with video or telephone conferences and increase teleworking options,” Messonnier said.

    She said local communities and cities may need to “modify, postpone or cancel mass gatherings.” Hospitals may need to triage patients differently, add more telehealth services and delay elective surgery, she said.

    “Now is the time for businesses, hospitals, communities, schools and everyday people to begin preparing,” she said.

    Is it just me or do every one of those Federal pearls of wisdom require state and local action?

    Where is Virginia’s state government on preparing for the possibility of contagion here?

    • yet another issue that the “market” will not handle and government must but of course government sucks and is totally incompetent so woe is us.

      • Your beloved government can’t even stop robo-calls. They certainly couldn’t maintain order in Charlottesville. Now you think they’ll successfully manage a pandemic. Take my advice Larry – go buy surgical masks while they’re still available and make sure your life insurance premiums are paid up.

        The virus outbreak in Wuhan was first reported in December, 2019. It’s almost March and the Imperial Clown Show in Richmond has spent the last several months debating how to raise taxes for wealth transfers to combat racial injustice, lining Dominion’s pockets, whether teachers can bring sun block to school and how principals should avoid telling police when students commit criminal acts.

        Have you read much (on this blog or elsewhere) about our state government’s emergency plan for dealing with coronavirus? Me either.

        Woe is us if the Feds’ only action is to make inane suggestions for schools to divide students into smaller groups and we’re left to hope that our Dillon Rule loving state government is what’s left to manage this fiasco.

        Want a bit of useful advice regarding your beloved government’s ability to manage this situation? See if Medicalproducts LTD will let you invest. They are America’s biggest maker of body bags.

    • I am waiting for our president to declare that those warnings by the CDC are just “fake news put out by the Democrats.”

      • And I’m waiting for any of our elected or appointed leaders in the state government to make the first intelligent statement as to what they propose to do if this outbreak is as bad as the CDC claims.

        https://www.martinsvillebulletin.com/news/local/coronavirus-being-watched-closely-in-virginia-by-both-public-officials/article_ae22943e-917d-5432-a593-7606b8607b46.html

        So, the Feds say it is inevitable that the virus will spread in the United States while Virginia’s State Epidemiologist says COVID-19 “has not been spreading in the United States”.

        Why have plans when we can sit around like dimwits hoping nothing bad happens?

        • You won’t get an argument from me on the Govt response to this point though I will point out that government employees are not put in the position of saying the truth verses what Trump likes or not these days.

          I also want to point out that we did also have some hiccups with Ebola but in the end, it did get handled successfully – not without some casualties.

          Govt is people and people make mistakes and bad judgements in their role working for the government.

          And no, I do not expect the GA in Richmond to do any better job that Congress in Washington on pandemics. That’s why we do have the CDC and other agencies staffed with folks who have the medical and related knowledge to deal with the issues.

  11. re: “beloved government”.

    No such thing, however in the real world, there is recognition that the “market” does not deal with a variety of things and those things fall to government which may or may not handle them in a competent or efficient manner – but the job still rests with the govt, the private sector does not want it.

    On COPN:

    We have 50 states.

    I’d like to see a concise list of things that are said to be affected by COPN then a comparison between COPN states and non-COPN states on these things – like MRIs and such.

    The theories don’t get it and neither do the anecdotal examples.

    let’s see some real data.

  12. On the cost of healthcare – and Government.

    In every other developed country on the planet – it is GOVERNMENT that controls healthcare and does it in such a way that it costs 1/2 of ours and they live longer.

    So, if Government CAN do healthcare “right” and actually does so in about 30 other countries then why can’t Government do it right in this country?

  13. Just a few notes:
    [1] 2019 Appropriation Act, Item 21F should actually be Item 281F and can be linked to https://budget.lis.virginia.gov/item/2019/1/HB1700/Chapter/1/281/
    [3] Code of Virginia, Virginia Antitrust Act § 59.1-9.2. can be linked to https://law.lis.virginia.gov/vacode/title59.1/chapter1.1/section59.1-9.2/

    • These are a couple of interesting bills.

      The first starts off talking about the Dept of Corrections and sexually violent types about to release but then two bullets later, it’s talking about electronic health records…

      The second bill is simple: “The purpose of this chapter is to promote the free market system in the economy of this Commonwealth by prohibiting restraints of trade and monopolistic practices that act or tend to act to decrease competition. This chapter shall be construed in accordance with the legislative purpose to implement fully the Commonwealth’s police power to regulate commerce.”

      This sounds like a de-facto blank slate to be able to look anywhere in the market for “restraints of trade” and “monopolistic practices”.

      I don’t see any power or authority to do anything … no work-products, etc.

      Is this more to this bill?

      • These are not bills, as such. The first is the item in the Appropriation Act directing the Secretary of Health and Human Resources to do various things. If you go to paragraph H., you will see the language relating to balance billing.

        The second link is to the chapter of the Code of Virginia that sets out the state antitrust law.

  14. Did not see H. I’m having a hard time understanding exactly the purpose of it.

    Can you simplify it?

    The second thing seems wildly broad – and I wonder what more in law applies lays out who carries out this mandate , what their powers are and what work products, etc…

    I’m not well versed in how the law and Constitution “work” in Virginia especially with regard to what things are aspirational and which actually have a full-functioning agency with a mission and work products.

  15. Certificates of Public Need and Necessity make sense in a monopoly environment to prevent over-investment that boosts customer bills. (Dominion has found lots of ways to do this.) They make no sense in a competitive environment. Licensing should be sufficient.

    Section 214 of the federal Communications Act provides a requirement that interstate carriers get FCC permission to construct and operate interstate & international lines. Years ago, the FCC adopted a rule that grants interstate carriers blanket authority to construct and operate interstate lines but still requires a filing for international authority, chiefly for national security purposes.

    Virginia’s COPN requirement is anticompetitive and should be removed.

  16. I don’t think changes should be made on what people “think” or “believe”. I think we need hard data to back up changes.

    And it should not actually be that hard to get that data and here’s how:

    look at the COPN and non-COPN states that border each other.

    Take Pennsylvania.

    It should be not that difficult to look at medical facilities in Pennsylvania near it’s border with COPN states.

    As said before. Basic theories about supply/demand assume that there are no other things that affect the supply/demand relationship. The real world does not work that way – whether it’s minimum wage or prescription drugs or COPN.

    The folks who support removal of COPN apparently view it as a one-at-a-time “undoing” of things that are deemed “anti-market” and that if these things are removed one at a time, we get back to a real “market”.

    I’m not in that group. I’m highly skeptical that we make changes based on theory alone. We have a large nation with 50 states that function as laboratories for change. We should use that circumstance to help us do pilots that help us make informed decisions on real world not just theory.

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